Hedge Funds Mutual Funds Advertising

Hedge Funds Mutual Funds Advertising

Mutual Funds Lobby for Hedge Fund Advertising Restrictions

The mutual fund industry is lobbying the SEC to prevent hedge funds and private equity firms from being able to mass market their funds. As we reported earlier, one of the important changes to come from the JOBS Act is the loosening of restrictions on how hedge funds and private equity firms advertise, allowing them to market funds to a broader audience. The SEC still has time to review the provision and make changes, so the Investment Company Institute is trying to get hedge funds to be subjected to the same or more-stringent restrictions as those that apply to advertisements by mutual funds.

The hedge fund industry, on the other hand, has made the argument that such tightened restrictions are unnecessary because hedge funds can only sell shares to accredited investors anyway so fear of average investors losing money to investments they don't understand is misguided.

The mutual fund industry's main lobby group, the Investment Company Institute, is asking the SEC to subject hedge funds to the same or more-stringent restrictions that apply to advertisements by mutual funds, which are heavily regulated.
ICI President and CEO Paul Schott Stevens, in a letter to the SEC last week, said the limits are needed to protect investors.

"Private fund advertising is particularly susceptible to fraud," he wrote, because private funds "often pursue investment strategies that are opaque" or "invest in securities that are difficult to value or relatively illiquid."
The hedge fund industry rejects the argument.

The Managed Funds Association, which represents the largest hedge funds, and BlackRock Inc. (BLK), an asset manager that has $110 billion in private fund assets, argued in separate letters to the SEC that the restrictions for retail fund advertisements aren't needed for private funds since they can only sell shares to "accredited investors", institutions or wealthy people deemed sophisticated enough to participate in private securities offerings.

"BlackRock does not believe that any additional regulatory framework for private fund advertising is necessary for the protection of investors," BlackRock Vice Chairman Barbara Novick wrote in a May 3 letter to the SEC. Source

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